2 days Ago
The so-called growth trade has taken a back seat in recent months as the markets have rotated into cyclical and more-defensive sectors such as financials, industrials, materials, utilities, health care, and staples. But there's a growth name that is standing out, according to the charts. This shift in the market is likely a result of recent economic data starting in early July that strongly suggested the first Fed rate cut since 2020 is on the horizon.
Despite the broadening of the breadth, many market watchers are calling this market rally into question and calling for a recession because the growth trade led by the 'Magnificent 7' and semiconductors have been lagging the broader market. I wonder if this is collectively the same group that doubted the bull market when it was rallying on narrow breadth led by the Mag 7. If you set the flagship growth sector technology, and the semiconductor industry, aside and look at the communications sector you see a strong uptrend, a sector ETF that just made new all-time highs, and some large-cap growth stocks like Meta, Netflix and Spotify ready to potentially rip to new highs.
Before we dive in, it's notable that the Communication Services Select Sector SPDR Fund (XLC) is making new highs while the largest market cap stock in it Alphabet is well off the all-time highs. That goes to show how strong some of the individual companies are in the communications sector. Today we'll revisit Meta (META) , the second largest market cap name in the sector behind Alphabet.
I last covered META here on CNBC Pro on June 18. Like XLC, META is consolidating just below all-time highs. A weekly close above $540 will be the highest close ever and should set up a tradable and investable rally into the $600's and above.
Notice how the volume has dried up in this consolidation that began in the Spring of this year and how the META/S & P 500 ratio has maintained a sideways trend suggesting that META was not a growth trade culprit pushing the broader market lower. Turning to the daily chart we see an Elliott Wave triangle that is often identified with 5 consolidating swings (labeled A through E) reflecting a period of consolidation and indecision between bulls and bears that often resolves in the direction of the trend that preceded the formation of the triangle; up in this case. The max width of the triangle is 23%, which also serves as an initial upside target upon resolution of the consolidation break giving us a target of $665.
I currently hold a 7% target allocation in my Tactical Alpha Growth (TAG) portfolio and a 2% target allocation in my Strategic Income & Growth (SIG) portfolio at Inside Edge Capital. I'm fully invested in META at this point as the S & P 500 carries a 2.5% weighting in META so I'm well overweight in my growth portfolio and almost market weight in dividend portfolio (did you know META pays a dividend?).
With META trading at $536 and expectations of $24.41 in EPS for 2025 that puts the forward valuation at 21.95 times earnings.
Annual free cash flow is stabilizing at $47 billion this year and expected to grow to $53 billion in 2025. And CEO Zuckerberg says to expect the AI spend to continue as they are already showing an ROI on ad revenue from the AI spend so Wall St seems to be giving META the green light to keep spending. META is still one of the best options for small and medium size businesses to spend on advertising.
Businesses would not increase their spend on advertising if the expectation of recession is likely and META is the large cap that knows how to generate a return on that investment. -Todd Gordon, Founder of Inside Edge Capital, LLC DISCLOSURES: ( Gordon owns META in his wealth management company Inside Edge Capital. Charts shown are MotiveWave.
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